‐i‐

Acknowledgments

This monograph is the product of my research as a Visiting Research Fellow (VRF) at

the Institute of Developing Economies Japan External Trade Organization(IDE-

JETRO), for the period of six months. I would love to express the deepest

appreciation to number of people as follow; I am so thankful to my advisor, Professor

Satoshi Inomata who has the attitude and the substance of the genius; he continually and

convincingly a sprite of adventure in regard to research and fellowship. Without his

guidance and his persistent help this research would not have been possible.

I am thankful to IDE-JETRO President Takaishi Shiraishi and selection committee who

selected me for the fellowship. I am thankful to all members of International

Exchange Department too for their valuable guidance and assistance regarding to

arranging my accommodation and their hospitalities.

Special thanks to my mother Fariba, my husband Shantanue and my brother Mehriab

for their supporting and love. I am so grateful to all my dear Japanese colleagues they

never let me feel lonely in Japan.

‐ii‐

Table of contents

Acknowledgment …………………………………………………………………… i Table of contents …………………………………………………………………… ii List of tables, ghraphs and maps ………………………………………………… iii Abstract ………………………………………………………………………… iv 1. Introduction ……………………………………………………………………… 1 2. Methodology …………………………………………………………………… 2

2.1. Hypothetical Extraction Method ………………………………………… 2 3. Analysis and ranking of sectors in modern approach …………………………… 3

3.1. Backward linkage indicators of the Iranian economic sector ……………… 5 3.2. Forward linkage indicators of the Iranian economic sector ………………… 7 3.3. Importance of Agriculture sector in Iranian economy ……………………… 8

3.3.1. Forward linkage of Agriculture sector ……………………………… 9 3.4. Importance of mining sector in Iranian economy ………………………… 9

3.4.1. Forward linkage of Mining sector …………………………………… 9 3.5. Importance of Crude oil & natural gas with its related industries in Iranian

economy …………………………………………………………………… 9 3.6. Importance of Industry sector in Iranian economy ……………………… 10 3.7. Importance of construction, Water supply and gas sectors ……………… 11

3.7.1. Forward linkage indicators of Construction sector ………………… 12 3.8. Electricity, water supply and gas ………………………………………… 12

3.8.1. Forward linkage indicators of Electricity, water supply and gas … 13 3.9. Importance of service sector in Iranian economy ………………………… 13

3.9.1. Forward linkage indicators of service sector ……………………… 14 4. Conclusion ……………………………………………………………………… 14 5. Policy recommendation ………………………………………………………… 18

5.1. Fiscal policy ……………………………………………………………… 18 5.2. Monetary and exchange rate policy ……………………………………… 18 5.3. Economic diversification ………………………………………………… 18

5.4. Institutions ………………………………………………………………… 19 Bibiography ……………………………………………………………………… 32 About the Author ………………………………………………………………… 34

‐iii‐

List of tables and figures

Table No 1 :Forward linkage indicators of Iranian economic sector ……………… 22

Table No 2 :Backward linkage indicators of Iranian economic sector …………… 24

Table No 3 Proportion of value added from total output of Iranian economic sector …

……………………………………………………………………………………… 26

Table No 4 :Proportion of final demand from total output of Iranian economic sector

……………………………………………………………………………………… 28

Figure No 1: key sector of Iranian economy ……………………………………… 5

Figure No 2: key sector with modern approach from Leontief Demand side ……… 6

Figure No 3: key sector with modern approach from Gosh Supply side …………… 8

Figure No 4: policy recommendation ……………………………………………… 20

‐iv‐

Abstract

The present study is an attempt to describe the role of Oil industry on the process of

industrial growth. The study focuses on the impact of oil and oil’s income on the trend

of structural changes and linkages of this sector with rest of the economy. The main

purpose of this research is to conduct a unified and comprehensive study on oil and the

income which is generated from oil export on the cycle of production or in other words’

on the manufacturing sector. We employed Input- Output modeling because it is one of

the most accepted means for estimating economic impact. This is because it provides a

concise and accurate means for articulating the interrelationships among industries.

Dependency of Iranian economy on oil revenue persuaded me to study the place and

importance of crude oil and natural gas with related industries in Iranian economy and

analyze its linkages with other sectors of economy by using Hypothetical Extraction

Method framework. The result of our research revealed that, five sectors out of 36

sectors of Iranian economy could be considered as key sectors, as follow: (1)

Agriculture (2) Construction (3) Whole sale & Retail sales (4) Transportation services

(5) Other services. We have used Hypothetical Extraction Method in our fourth chapter.

The original idea of the (HEM) tries to extract a sector hypothetically from an

economic system and examine the influence of this extraction on other sectors in the

economy. The output differences before and after the hypothetical extractions reflect the

linkage of a sector. Linkage measures based on the (HEM) are becoming increasingly

influential. So we could find out the importance of any sector in production cycle and

indentifying key sector in Iran economy.

The main purpose of this thesis is to present the real picture of Oil and Gas sector

(with related industries) in the critical language. The role of Oil and Gas sector (with

related industries) and its incomes on the process of industrial growth in the Iranian

economy has been assessed from different point of views.

This thesis endeavor to present the real picture of oil income as main source of

government incomes. We study the linkage (forward linkage-FL, backward

linkage-BL) among the sectors to see the importance of each sector separately in the

Iranian economy. We have a different ideas under our research, first, the negative role of

‐v‐

oil income on the industrial growth and second that this sector is not a key sector and

finally to prove the weak and negative role of this sector on the production chain. Using

the input-output model helps us to study the interaction between sectors. The structural

decomposition model helps us to analyze the change in output induce by change in

domestic demand, export, import, intermediate input use, and input output coefficients.

This model analyzes a major shift within the economy by means of comparative static

examination of key parameters. While hypothetical extraction method tries to extract a

sector hypothetically from an economy system and examine the influence of this

extraction in the sector in the economy.

The result of our research revealed that, five sectors out of 36 sectors of Iranian

economy could be considered as key sectors, as follow: (1) Agriculture (2) Construction

(3) Whole sales & Retail sales (4) Transportation services (5) Other services. We used

the input-output table of 99 sectors in 2001 year, the analysis of these results helped us

to determine and identify the key sector in Iranian economy with special reference to

crude oil and natural gas sector with related industries. We measured a correlation

between (BL&FDs- the share of final demand of each sector) (see table 6), and

(BL&WDs- the share of intermediate demand of each sector) (see table 7) to show

the feature of each sector and their impact separately in the cycle of economic

production. As we mentioned before sector with high value in both forward and

backward linkages is called a key sector. So, high value in both forward and backward

linkages is required for identifying a sector as a key sector. The value of backward

linkage indicator of these sectors (oil & gas sectors with related industries) is at low

value because this sector plays a fundamental connecting role in the value chain,

whereas if the value of forward linkage indicator of this sector are at high value, it

shows the weak sectoral independence and strong push of these sector, If we take a look

at table 7, the correlation between (FL & VAs- the share of Value added of each

sector) and (FL &CWs- the share of Intermediate cost of each sector) it’s clear that

only 2.6 percent of these sector’s output related to intermediate demand (intersection

demand) and hence 97.4 percent related to value-add share of these sector’s output. So,

these sectors are not considered as a key sector in Iranian economy because these

sectors have major role in creating demand and attracting buyer to distribution system.

‐vi‐

Out of the 22 industries in the industry sector, except manufactures of Food and

Beverage and manufactures of motor vehicles & other transport equipment with high

value in backward linkages and manufactures of other non-metallic & mineral products,

manufactures of basic iron and steel with relative high value in forward linkages, the

rest of the industries can be considered as non-key sectors, because they don’t have

considerable value either in backward linkage nor in forward linkage. This means

industry sector in Iranian economy has not developed properly in a way like other

developing countries such as South Korea, Brazil, and Malaysia. Manufacture sector

play important and vital in the process of industrial growth of any economy therefore,

lack of a developed industry sector in the economy of a country could cause a chronic

and cyclical problem which could lead the economy to permanent crises. Most of the

key sectors in Iranian economy except Construction and Agriculture are in this section

(service sector); Wholesale & retail sale, Transportation services and other services.

Service sector play important role in the Iranian economy, so that in the recent years the

value-added of service sector accounted for more than 50 percent of gross domestic

output.

The backward linkage of these sectors, food and beverage, construction, other services,

agriculture, motor vehicle and other transport equipment, transportation service, public

services, are more than average of economy’s backward linkage. This is obvious which

three sector out of seven sector are belongs to service sector, and two sector are belongs

to industry sector. Sectors which have backward linkage larger than 1 are the sectors

that have more dependency to the other sectors, so far this issue shows that these sectors

act as an intermediate buyers than as an intermediate sellers.

We find out that, the crude oil and natural gas sector with related industries as a supplier

plays a service delivery role in the value chain of other sector. These sectors have fairly,

considerable high forward linkage, which means according to this approach it should

has a relative high performance in Iranian economy, but with a little attention it’s clear

that only 2.6 percent of this sector’s output related to intermediate demand

(intermediate intersection) and hence 97.4 percent related to value-added share of this

sectors output (see table 5). Due to these sectors’s low value in backward linkage, this

sector has not considered as a key sector in Iranian economy. This result is quit

‐vii‐

compatible with our last hypothesis that Oil and Gas sector (with related industries) is

not a key sector and these sectors can’t push the economy and play important role in

production chain.

In response to many constraints and problems that Iranian economy faced regarding to

expansion of non-oil exports and exit from mono-economy to poly-economy, numbers

of remedial measures and policy recommendation have been identified that we mention

some of them as follow:

Fiscal policy:

Government revenues in Iran economy are highly dependent on the prices of the

commodities they export. Those prices are both highly volatile and hard to predict.in the

short run, government of Iran need to promote macroeconomic stability by decoupling

current spending from volatile government revenues. In the long run, Iran need to

establish medium-term spending plans to ensure intergenerational equity. Sustainable

management of revenues derived from the exploitation of exhaustible natural resources

can be achieved either through the accumulation of savings in Oil Stabilization of Funds

or trough public investment in future growth outside the natural-resource sector (Das et

al.2009).

Monetary policy:

Iranian economy frequently faces large and volatile capital flows which complicated the

conduct of monetary and exchange rate policy. Stabilizing exchange rate by limiting

flexible exchange rate and inflation target regime in order to sheltering the economy

from external shocks could be useful and successful in Iran case. A properly managed

counter-cyclical fiscal policy will provide a degree of automatic sterilization by

increasing the unity and integration between fiscal authorizes and central bank of Iran.

Economic diversification:

Experiences with industrial policy around the world suggest that it is not

straightforward to design an appropriate incentive structure that would help lay the

ground for economic diversification in resource-rich countries. Old-style industrial

policies where government is directly involved in the production process need to be

avoided. Indeed, those policies have in many cases been captured by local elites,

opening the door to corruption and undermining the broader institutional framework.

‐viii‐

New industrial policies have focused on designing incentive-compatible rules aiming to

achieve a private sector-led economic diversification. Success stories that have yielded

economic diversification suggest that low, predictable and non-distorting taxes on

entrepreneurial activity can help foster diversification. Also, the use of commodity

proceeds to establish a supportive physical and social infrastructure can raise returns

and encourage private investment in other sectors. The financial sector can also play an

important role in fostering economic diversification. In particular, effort to deepen and

broaden financial systems in resource-based economies would help achieve that goal.

Institutions

Perhaps the biggest challenge facing resource-rich countries and of course Iran results

from rent-seeking behavior that undermines their existing institutions, including

political diversification and democracy.in countries with weak institutions, talent tends

to shift out of private entrepreneurial activity into more lucrative rent-seeking activates,

with detrimental implications for efficiency and sustainable economic growth. In Iran

institutions need to be designed to guard against such developments. The strong and

reliable property rights can foster financial-sector development, allowing the financial

system to play a more active and significant role in intermediating resources to help

build small and medium-sized enterprises in the non-resource rich sectors of the

economy. Generally, more effective checks and balances and more transparency in the

management of natural-resource revenues can help counteract the misallocation of talent

into socially unproductive activities in Iranian economy.

‐1‐

1. Introduction

Oil and gas revenues play a strategic role in the structure of the Iranian economy.

Holding 10 percent of the world’s proven oil reserves as the second largest producer

(after Saudi Arabia) within the Organization of Petroleum Exporting Countries (sees

OPEC, 2005), Iran significantly affects, and is affected by, the international oil market.

Iran’s economy relies heavily on crude oil export revenues representing about 90

percent of total export earnings and on average 60 percent of government revenues in

annual budgets (The Central Bank of Iran, 2008). The share of oil value-added in the

GDP of Iran averaged about 20 percent between 1970 and 2006. The unique role of oil

revenues in the structure of government budget and social security programs distinguish

the Iranian economy from other oil-dependent countries. Despite higher oil prices and

revenues in recent years, the Iranian government’s budget deficits are still a challenging

issue, in part due to the large scale of state subsidies on energy and comestible goods.

Possible sources of financing the annual budget deficits include issuing state bonds,

foreign borrowing, privatization and withdrawals from the Oil Stabilization Fund

(OSF); more than 90 percent of annual budget deficits in Iran are financed through

withdrawals from OSF. This is like spending oil revenues directly and has strong

inflationary effects through increasing money supply in the economy. Considering the

high rigidity of current government expenditures in Iran, any significant negative oil

price shocks will worsen the budget deficit of the government and create inflationary

pressures for the whole economy. This research aims to identify the key sectors and

explore the linkages (forward & backward) between economic sectors of Iran. Because

of the high level of dependency of Iranian economy on oil revenues, it is crucial to

study a relative position of crude oil and natural gas industries within the Iranian

economy, and to analyze their linkages with other sectors by using the Hypothetical

Extraction Method (HEM) in the input-output framework.

Conceptually, a sector's relationships with the rest of the economy through its direct and

indirect intermediate purchases and sales are described as the sector's linkages, which

are considered to be one of the most important factors for gaining competitive

advantage. The direction and level of such linkages define the potential capacity of each

‐2‐

sector to stimulate other sectors. The sectors with strong linkages should be capable of

stimulating a rapid growth of production, income and employment, compared to

alternative allocations of resources. For example, a strong linkage between a supplier

and a buyer may guarantee on-time delivery of high quality intermediate inputs.

Information on these linkages is essential to understand the structure of an economy,

which is in turn important in formulating industrial policies and business strategies.

What is more, the linkages are important for innovative activities because there is a

positive relation between the diversity of local industrial structure and the number of

innovations achieved by these industries.

The study aims to examine the role and position of oil and gas sector within the Iranian

economy and their impact on national income in the process of industrial growth. This

research presents a real picture of oil revenues as a main source of government incomes,

and examines the linkages (forward linkage, backward linkage) among the sectors in

order to see the importance of each sector separately in the Iranian economy. The study

takes different approaches to the research questions. First, the negative role of oil

income on the industrial growth is considered; second, whether oil and gas sectors are

key sectors of the economy is discussed; and finally advantages and disadvantages of

these sectors in the production chains are identified. The research use Hypothetical

Extraction Model in input-output frameworks. Using the HEM based on an input-output

model helps us to understand the interaction between industries and to examine the

relative importance of the target sectors in the economy.

2. Methodology

2.1. Hypothetical extraction method

The original idea of the (HEM) developed by stassert (1968) which was to extract a

sector hypothetically from an economic system and examine the influence of this

extraction on other sector in the economy. Mathematically, the idea was to quantify how

much an economy's total output would decrease if the sector were extracted. Thus, by

comparing the output levels for each of the remaining sectors before and after the

hypothetical extraction, the impact of the extracted sector can be assist. The difference

between the output in the reduced case and in the original situation reflects the linkages

between the extracted sector and all other sectors in the economy. In the light of the

‐3‐

basic ideal of (HEM), it is assumed that the n-sector input-output technical coefficient A

has been partitioned into two groups: group one (b1) is a sector that are to be extracted

from the economy and group two (b2, b1+ b2=n) consists of all the remaining sectors of

the economy. Now, the b1 has been extracted hypothetically from the economy, using

the same final demand vector the Leontief model can be rewritten as X'= (I – A)-1Y,

where X' is the output after extraction and A' is a reduced technical coefficients matrix

{ })1()1( −∗− nn . The reduction in output can be expressed as X – X', which reflects the

linkage between b1 and b2 given the technical production process held constant. The

linkage can be decomposed into backward and forward linkage according to different

transformations.

In the literature, backward and forward linkages are widely accepted concepts for

describing inter-sectoral relationship, yet how to measure those remains controversial

even though much research. Cella (1984) defined "total linkage", which was

decomposed into total backward and forward linkages. Cella argued that his method

built up an appropriate measure of "the quantities of n goods directly and indirectly

stimulated by the intermediate functions". However, Cella's definitions received a lot of

criticism, which mainly focused on the decomposition of linkages and the choice of the

Leontief quantity model and Ghosh price model. Following these arguments, a series of

methods (transformations) where proposed, such as net linkage, absolute linkage, pure

linkage and so on. Miller and Lahr (2001) reviewed all these transformations in light of

the influence on output by using seven hypothetical extractions from the Leontief and

Ghosh models and concluded that the total linkage derived from the (HEM) is an

appropriate measure of an extracted sector's importance. Additionally, they suggested

using the Leontief model to explore the backward linkage and the Ghosh model to

measure the forward linkage. Their suggestions have been approved widely in the

literature.

3. Analysis and Ranking of Sectors in Modern Approach:

Table (1) shows the results of indentation the key sectors with modern approach from

Leontief demand side. According to amount of effect due to extract of each sector in

reduction of output in the economy from maximum reduction to minimum reduction,

‐4‐

sectors are ranked from 1 up to 36. In the other word, the sector with maximum

importance in the economy is in the first rank in this table and sector with minimum

importance in the economy is in the 36 rank in this table. For example: Food and

beverage industries, construction sector, other services, agriculture sector, motor vehicle

and other transport equipment have maximum backward linkage in Iranian economy;

hence they allocated 1 up to 5 ranks to themselves in order. (Figure 2)

Table (2) shows the result of identification the key sector with modern approach from

Ghosh supply side. Same as Leontief pattern sector with maximum importance in the

economy is in the 1 rank and sector with minimum importance in the economy is in the

36 rank in this table. (Figure 3) For example: Wholesale and retail sale sector,

agriculture sector, transportation services, other services, crude oil and natural gas

sector in order have maximum forward linkage in Iranian economy and hence they

allocated 1 up to 5 ranks to themselves.

The result of our research shows that in this approach, five sectors out of 36 sectors of

Iranian economy could be considered as key sectors, as follow: (1) Agriculture (2)

Construction (3) Whole sells & Retail sells (4) Transportation services (5) Other

services. (Figure 1)

‐5‐

Figure No 1:

Key Sector of Iranian Economy

To have a more comprehensive analysis we divided economic activities into six groups

as follow: (1) Agriculture (2) Crude oil and natural gas sector with related industries (3)

Other mining (4) Industry (5) Construction, Water, Electricity, Natural Gas (6) Services.

3.1 Backward linkage indicators of the Iranian economics sector:

Assuming that all the local products inputs of the sector are extracted and all inputs will

depend on imports (the forward and internal effects will remain), the backward linkage

of sector reflects this sector’s dependence on local inputs that are produced within the

production process of the economy.

The backward linkage of these sectors: food and beverage, construction, other services,

agriculture, motor vehicle and other transport equipment, transportation service, public

services, are more than average of economics backward linkage. This is obvious which

three sector out of seven sector are belongs to service sector, and two sector are belongs

to industry sector.

The sectors with relative high value in backward linkage represent a weak sectoral

independence. On the other hand, a higher value of backward linkage represents a

Key Sectors of Iranian

Economy

(1) Agriculture

(2) Construction

(3) Wholesale

& Retailsale (4)

Transportation Services

(5) Other

services

Source: Authour

‐6‐

strong economic pull of these sectors to the remaining sectors. The backward linkage

induces growth through the process of derived demand because the remaining sectors

would have to face the losses without the purchase of these sectors. More importantly,

the backward linkage indicator is a measure of degree of the industrialization of these

sectors production process and the national technology difference in terms of

intermediate and value-added inputs composition, because it is generally agreed that

input-output tables reflect a general equilibrium model of the economy where inputs are

allocated according to technological availability. With a lower relative backward linkage

indicator, the sector represents low industrialization and technology levels.

Sectors which have backward linkage larger than 1 are the sectors that have more

dependency to the other sectors, so far this issue shows that these sectors act as an

intermediate buyers than as an intermediated sellers. Rasmussen suggests the Direct

Indirect Backward Linkage (DIBL) as a total linkage which generally known as a

demand multiplier which represent the increase of total output per increase of 1 unit in

final demand.

Figure No 2: Key sector with modern approach

from Leontief Demand side Figure

Source : Author

Construction Sector Other Services

Agriculture Sector

Motor Vehicle & Other trasport

equipment

‐7‐

3.2 Forward linkage indicators of Iranian economics sector:

The forward linkage of a sector reflects the dependence of the remaining sectors in the

economy on sectors supplies that are produced within the production process. Assuming

that extracted sector just sells for export, except for deliveries to itself, the difference

between the outputs in the reduced case and in the original situation reflects the

economic losses of the remaining sectors of the economy without the supply of the local

sector.

The forward linkage of these sectors, whole sales and retail sales, agriculture,

transportation services, other services, crude oil and natural gas, water/electricity/natural

gas, are more than the average of economics forward linkage, hence other sectors of

economy have more dependency to these sectors. It means these sectors should be close

to primary commodities, in sectors like: crude oil and natural gas, non-metallic mineral

products, basic metal products, chemical products, this issue obviously could be

observed.

A strong forward linkage shows a week sectoral independence and a strong push of the

sector. Moreover, the value of the indicator reflects that the proportion of final demand

of the sector is larger than its intermediate demand in the country. The main reason

seems to be that these sectors has a major role in creating demand and attracting the

buyer to the distribution system. The lower relative forward linkage indicator shows the

strong sectoral independence and weak economic push of these sectors.

‐8‐

Figure No 3: Key sector with modern approach

from Gosh Supply side

Source : Author

3.3 Importance of Agriculture sector in Iranian economy:

The relative linkage indicates the percentage decrease in economy-wide outputs caused

by the extraction of agriculture sector. The relative backward linkage indicators of

agriculture sector is at a high value 3.10 percent which it allocated the 4th ranks in

backward linkage point of view among the 36 sector of Iranian economy as it shown

in table 3.

A higher backward linkage suggests a weak sectoral independence on the other hand; a

higher value represents a strong weak economic pull of Agriculture to the remaining

sectors. The backward linkage induces growth through the process of derived demand

because the remaining sectors would have to face the losses without the purchase of

agriculture sector.

Whole sale & Retail sale

Sector

Agricultre Sector

Transportation Services

Other Services

Crude oil & Natural Gas

Sector

‐9‐

3.3.1 Forward Linkage of agriculture sector:

The value of relative Forward linkage indicators are at a higher value 5.49 percent at

compare to the value of relative backward linkage, which is allocated 2th ranks in

forward linkage point of view among the 36 sector as it shown in table 4.

A strong forward linkage shows a weak sectoral independence and strong economic

push of the agriculture sector. Comparing with the backward linkage indicators, forward

linkage indicators has higher value which shows a higher forward linkage effect on the

sectoral output.

3.4 Importance of Mining sector in Iranian Economy:

The backward linkage of Mining sector is at a low value 0.41 percent which is smaller

than 1 and it allocated 16th ranks in backward point of view among 36 sectors. (As it

shown in table 3)

Such a low value of backward linkage shows a very strong sectoral independence on the

other hand, a lower value represents a weak economic pull of mining sector to the

remaining sectors.

3.4.1 The forward linkage of mining sector:

The value of relative forward linkage indicators are at a higher value 1.12 percent which

is bigger than 1 and it allocated 11th ranks in forward linkage point of view among the

36 sector.( as it shown in table 4). A strong forward linkage shows a weak sectoral

independence and strong economic push of the remaining sector. Compared with the

backward linkage indicators, the forward linkage indicators have a higher value, which

shows a higher forward effect on the sectoral output.

3.5 Importance of Crude oil and Natural gas sector with related industries in

Iranian Economy:

The relative linkage indicates the percentage decrease in economy-wide outputs caused

by the extraction of crude oil and natural gas sector with related industries. The value of

the backward linkage indicator is at a low value because this sector plays a fundamental

connecting role in the value chain, which suggests a strong sectoral independence and

weak economic pull of this sector to the remaining sectors. Whereas the value of

forward linkage indicator are at high value, which shows the weak sectoral

independence and strong push of this sector because this sector has a major role in

‐10‐

creating demand and attracting buyer to the distribution system.

The crude oil and natural gas sector with related industries as a supplier plays a service

delivery role in the value chain of other sector. These sectors have fairly, considerable

high forward linkage, which means according to this approach it should has a relative

high performance in Iranian economy, but with a little attention it’s clear that only 2.6

percent of this sector’s output related to intermediate demand (intermediate intersection)

and hence 97.4 percent related to value-added share of this sectors output (see table 5).

From this point of view, value-added is an effective factor in calculating of forward

linkage, therefore one of the important factors of high forward linkage is related to high

value-added of it. The higher rankings of forward linkage reflect the strength of the

push to economic growth is larger than that of the pull in these sectors. Due to these

sectors low value in backward linkage, this sector has not considered as a key sector in

Iranian economy.

3.6 Importance of Industry sector in Iranian Economy:

Out of the 22 industries in the industry sector, except manufactures of Food and

Beverage and manufactures of motor vehicles & other transport equipment with high

value in backward linkages and manufactures of other non-metallic & mineral products,

manufactures of basic iron and steel with relative high value in forward linkages, the

rest industries considers as non-key sectors, because they don’t have considerable value

either in backward linkage nor in forward linkage.

The backward linkage indicators of Food and Beverage manufactures are at very high

value 7.84 percent and it allocated the 1th ranks in backward linkage point of view

among the 36 sectors( as it shown in table 3). Motor vehicles & other transport

equipment manufacturers have high relative value in backward linkages too, 2.60

percent and it allocated 5th ranks among 36 sectors.

The two other sectors have relative high value in forward linkage indictors, the

manufactures of other non-metallic &mineral products have relative high value in

forward linkage 1.28 percent and it allocated 9th ranks among 36 sectors, and the

manufactures of basic iron & steel have relative high value in forward linkage indicators

too with 1.52 percent and it allocated the 10th ranks among the 36 sectors, whereas they

have got a very low value in backward linkage.

‐11‐

In the industry sector, there is not a key sector except these four sectors which they have

got relative high value in backward & forward linkages separately, that means they have

not been consider as key sector too because they don’t have relative high value in both

backward and forward linkages, and the rest industries considered as a non-key sector.

The higher relative forward linkage of Food and Beverage manufactures & Motor

vehicles & other transport equipment manufactures represents the high industrialization

and technology levels. The higher ranks of backward linkage in these industries as

compare to low ranks of forward linkage reflect the strength of the pull to economic

growth is larger than that of the push in these industries. It demonstrated that developing

these industries through promoting the national economy is not as effective as

developing a national economy by promoting these industries.

The higher relative value of Forward linkage indicator in manufactures of other

non-metallic &mineral products and manufactures of basic iron & steel represents

strong forward linkages that show a weak sectoral independence and a strong economic

push of these industries. The high ranking in forward linkage compared with backward

linkage reflect the strength of the push to economic growth is larger than that of the pull

in these industries. It also demonstrated that developing a national economy by

promoting these industries is not effective as developing these industries through

promoting the national economy.

3.7 Importance of Construction, Electricity, Water supply and Gas sectors in the

Iranian economy:

If the value of both the backward linkage and forward linkage indicators of a sector are

above the corresponding average, the sector is called a ‘key’ sector. Construction sector

considered as a key sector in Iranian economy, because it has a relative high linkage in

backward linkage as well as forward linkage, so we can consider this sector as a key

sector. Construction sector has relative high backward linkage indicator, it means the

backward linkage of this sector is larger than one, 6.83 percent and it allocated 2th ranks

among the 36 sector from backward linkage point of view.

The forward linkage indicator of construction sector is larger than one, 1.52 percent

which means this sector has relative high backward linkage indicator, and it allocated 8th

ranks among the 36 sectors as it shown in the table 4.

‐12‐

The amount of backward linkage indicator of construction sector 6.83 percent is five

times larger than the amount of forward linkage indicator 1.52 percent.

Such a strong backward linkage means a strong sectoral independence, or in the other

word, a higher value represents a strong economic pull of construction sector to the

remaining sectors. The backward linkage induces growth through the process of derived

demand because the remaining sectors would have to face losses without purchase of

the construction sector. The high backward linkage indicator of construction sector

shows a high degree of the industrialization of this sector production’s process and the

national technology difference in the terms of intermediate and value-added inputs

composition. The high value of backward linkage indicators means that construction

sector’s ability to pull the rest of the economy is high.

3.7.1 Forward linkage indicators of construction sector:

The relative forward linkage indicators of the construction sector is above the

corresponding average which means it is larger than one, 1.52 percent but as I

mentioned above that a strong forward linkage shows a weak sectoral

independence ,and a strong economic push of construction sector. Moreover the value of

the relative high forward linkage indicators reflects that the proportion of final demand

of construction sector is larger than its intermediate demand.

The main reason seems to be that construction sector has major role in creating demand

and attracting the buyer to the distribution systems. Compared with forward linkage

indicators, the backward linkage indicator has a higher value, which is show a higher

backward linkage effect on the sectoral output. The higher rankings reflect the strength

of the pull to economic growth is larger than that of the push in the construction sector.

So, because of the higher value in both backward linkage and forward linkage indicators

of construction sector, this sector consider as key sector in the Iranian economy.

3.8 Electricity, Water supply and Gas:

The Backward linkage indicators of these sectors are at very low value 0.23 percent and

it allocated the 20th ranks among the 36 sectors (it shown in able 3). A weak backward

linkage suggests a strong independence. On the other hand, such a low value represents

a weak economic pull of the (Electricity, Water supply and Gas) sectors. The low

backward linkage indicator of these sectors represents low industrialization and

‐13‐

technology levels. The backward indicators are a measure of the degree of

industrialization of a sector’s production process and the national technology difference

in the terms of intermediate and value-added inputs composition. The relative low value

is reasonable for (Electricity, Water supply and Gas) sectors because this sector plays a

fundamental connecting role in the value chain.

3.8.1 Forward linkage indicator of (Electricity, Water supply and Gas) sectors:

Assuming that the (Electricity, Water supply and Gas) sectors only sells for export,

except for deliveries to itself, the difference between the output in the reduced case and

in the original situation reflects the economic losses of the remaining sectors of the

economy without supply of the local (Electricity, Water supply and Gas) sectors.

The forward linkage of a (Electricity, Water supply and Gas) sectors reflects the

dependence of the remaining sectors in the economy on these sectors supplies, which

are produced within the production process. The value of the forward linkage indicators

is at a higher value compared with the backward linkage. Moreover, the value the

indicator reflects that proportion of final demand of (Electricity, Water supply and Gas)

sectors is larger that it’s intermediate demand. The main reason seems to be that

(Electricity, Water supply and Gas) sectors have major role in creating demand and

attracting the buyer to the distribution system.

3.9 Importance of service sector in the Iranians economy:

This sector including the (wholesales& retail sales, transportation services, public

services, education services, medical services and other services) which we aggregated

into one sector called services sector.

The maximum key sectors of Iranian economy are in this section as follow:

wholesales& retail sales, transportation services and other services. So out of six sectors,

three sectors are considered as key sectors. As I explained before, if the values of both

the backward linkage and forward linkage indicators of sector are above the

corresponding averages the sector is called a’ key’ sector. The backward linkage of other

services is 3.60 percent, wholesales& retail sales is relatively high 1.95 percent and

transportation services is 1.36 percent which reflects these sector’s dependence on local

inputs that are produced within the production process of the economy. A strong

backward linkage suggests a strong economic pull of these sectors to the rest of

‐14‐

economy.

The other sectors in this section like, public services and medical services have relative

high backward linkage indicators but are not considered as key sector because they have

got high value in backward linkage only.

The public sector has relative high value of backward linkage 1.71 percent and medical

services has approximate high value in backward linkage 0.99 percent, which represents

the high industrialization and technology levels of these sector and it shows the strong

economic pull and sectoral independence of these two sectors.

The education services consider as a non-key sector because the value of both backward

linkage and forward linkage indicators are not above the corresponding average, so this

sector is called a non-key sector. The backward linkage indicator of education services

is 0.70 percent which allocated the 12th ranks among the 36 sectors to itself in backward

linkage point of view.

3.9.1 Forward linkage indicator of Service sector:

As wholesales& retail sale, transportation services and other services are the key sector,

therefore they have got relative high forward linkage indicators. The forward linkage of

wholesales& retail sale is 6.73 percent which allocated 1th ranks and the value of

forward linkage transportation services is 4.23 percent which allocated 3th ranks and

other services forward linkage indicator is 3.39 percent that allocated 4th ranks among

the 36 sector.

The high value of forward linkage indicators of these sectors show the strong economic

push of these sectors which mean these sectors push strength to economic growth. The

value of the indicator shows these sectors have weak sectoral independence too.

The forward linkage of medical services and public service are at a very low value

which means strong sectoral independence and weak economic push of these sectors

and represents that these sectors’ push strength to economic growth is relatively low.

The forward linkage of education services is at very low value 0.12 percent, which is

one more reason to consider this sector as a non-key sector.

4. Conclusion:

Since the first oil shock in 1973, almost the economic performance of Iran has been

related to its natural resource wealth. The economy has experienced relatively lower per

‐15‐

capita GDP growth, higher income inequality, lower rate of industrial production and

lower rate of non-oil production export. This may support this hypothesis that natural

resources seem to have been more of curse than a blessing for Iran. Numerous

researchers have supported the view that resource poor countries often outperform

resource rich countries (Sacha and Warner, 1995). The sharp swing in its economic

performance and oil prices in the recent decades make Iran a natural laboratory for

investigating the relationship among oil abundance and macroeconomic variable such as

economic growth, manufacturing growth and etc…natural resource such as oil may be

regarded as gift from the god, because in theory it can be taxed away by governments

without impairing incentives to produce. A high ratio of natural resource over GDP can

facilitate economic development if the rent uses to boost levels of investment and

foreign exchange from resource exports is deployed to enhance the capacity to import

the capital goods required to build a modern economy.

Since 1970s, changes in the price of oil have been important source of economic

fluctuations, as well as a paradigm of global shock, likely to affect many

macroeconomics indicators in Iran. More specially, this process has resulted in lower

productivity, lower industrial growth, higher income inequality, higher unemployment

and higher inflation characterized every resource based economy after the mid-1970s.

Effects of oil production exports can inhibit growth in manufacturing, a sector whose

expansion is commonly believed to generate positive productivity externalities, giving

rise to increasing returns. Slower growth in manufacturing would reduce the economy’s

potential for dynamic growth.

In the case of oil production export, large scale revenue inflows from exports put

upward pressure on the exchange rate. They also lead to a significant expansion in

domestic demand relative to the country’s ability to supply that demand. The demand

expansion comes from the budget and public sector and where the revenues get into the

domestic banking sector, from credit expansion. The demand expansion in turn

increases the prices of non-traded goods, causing a further appreciation of the real

exchange rate. The combination of these impacts results in an often dramatic decline in

the competitiveness of non-oil exports, a shift in domestic resources away from those

‐16‐

sectors to non-traded goods sector and erosion of diversity and balance in the domestic

economy. All these evidence has been identified in almost all countries where potential

exports play a major role in their economy. Oil-reliance economies like Iran benefit less

from the technology spillovers that are typical in manufacturing industries because the

exports of these industries are harmed by an appreciation of local currency.

The transformations of structure of economy happen in that manner the relative

importance of agriculture sector decrease and importance of other sectors particularly

industry increase. But in Iran there has been always a shortcut in this trend about

importance of industry sector and its maturity. It means that as importance of

agriculture sector decreased the importance of industry sector has not increased up to

the maturity level and to allocate the noticeable part of GDP to itself. And we could

practically claim that industry sector in Iranians economy has not developed like other

developing country such as, South Korea, Brazil, India & Malaysia. Therefore, we have

made a shortcut from agriculture to service sector.

We used Hypothetical Extraction Method in input-output framework in forth chapter of

this thesis, which could present the importance of sector in Iranian economy.

Dependency of Iranian economy to oil revenue pursues us to study the place and

importance of crude oil and natural gas with related industries in Iranian economy and

analyze its linkages (forward & backward) with other sector of economy by using

Hypothetical Extraction Method frameworks. Theoretically, a sector's relationships with

the rest of the economy through its direct and indirect intermediate purchases and sales

are described as the sector's linkages. Linkage is one of the most important factors for

gaining competitive advantage. The direction and level of such linkages present the

potential capacity of each sector to stimulate other sectors. The sectors with the highest

linkages should be possible to stimulate a more rapid growth of production, income and

employment then with alternative allocations of resources.

We used the input-output table of 99 sectors in 2001 year, the analysis of these results

helped us to determine and identify the key sector in Iranian economy with special

reference to crude oil and natural gas sector with related industries. In order to bring

our empirical results in a manageable proportion, we have aggregated the above 99

‐17‐

sectors to 36 sector. We presented our result in two tables according to sectors rank &

status in backward and forward linkages. We measured a correlation between

(BL&FDs) and (BL&WDs) to show the accurate feature of each sector and their impact

separately in the cycle of economic production. As we mentioned before sector with

high value in both forward and backward linkages is called a key sector. So, high value

in both forward and backward linkages is required to identifying a sector as a key sector.

The value of backward linkage indicator of these sectors is at low value because this

sector play fundamental connecting role in the value chain, whereas the value of

forward linkage indicator of this sector are at high value, which shows the weak sectoral

independence and strong push of these sector, b If we take a look to table 5, the

correlation between (FL & VAs) and (FL &CWs) it’s clear that only 2.6 percent of

these sector’s output related to intermediate demand (intersection demand) and hence

97.4 percent related to value-add share of these sector’s output So, these sectors are not

considered as a key sector in Iranian economy because these sectors have major role in

creating demand and attracting buyer to distribution system.

Out of the 22 industries in the industry sector, except manufactures of Food and

Beverage and manufactures of motor vehicles & other transport equipment with high

value in backward linkages and manufactures of other non-metallic & mineral products,

manufactures of basic iron and steel with relative high value in forward linkages, the

rest industries considers as non-key sectors, because they don’t have considerable value

either in backward linkage nor in forward linkage. This means industry sector in Iranian

economy has not developed properly in a way like other developing countries such as

South Korea, Brazil, and Malaysia. Manufacture sector play important and vital in the

process of industrial growth of any economy therefore, lack of a developed industry

sector in the economy of a country could cause a chronic and cyclical problem which

could lead the economy to permanent crises. Most of the key sectors in Iranian economy

except Construction and Agriculture are in this section (service sector); Wholesale &

retail sale, Transportation services and other services. Service sector play important role

in the Iranian economy, so that in the recent years the value-added of service sector

allocated more than 50 percent of gross domestic output to itself.

‐18‐

5. Policy recommendation

In response to many constraints and problems that Iranian economy faced regarding to

expansion of non-oil exports and exit from mono-economy to poly-economy, numbers

of remedial measures and policy recommendation have been identified as follow:

5.1 Fiscal policy:

Government revenues in Iran economy are highly dependent on the prices of the

commodities they export. Those prices are both highly volatile and hard to predict.in the

short run, government of Iran need to promote macroeconomic stability by decoupling

current spending from volatile government revenues. In the long run, Iran need to

establish medium-term spending plans to ensure intergenerational equity. Sustainable

management of revenues derived from the exploitation of exhaustible natural resources

can be achieved either through the accumulation of savings in Oil Stabilization of Funds

or trough public investment in future growth outside the natural-resource sector (Das et

al.2009).

5.2 Monetary policy:

Iranian economy frequently faces large and volatile capital flows which complicated the

conduct of monetary and exchange rate policy. Stabilizing exchange rate by limiting

flexible exchange rate and inflation target regime in order to sheltering the economy

from external shocks could be useful and successful in Iran case. A properly managed

counter-cyclical fiscal policy will provide a degree of automatic sterilization by

increasing the unity and integration between fiscal authorizes and central bank of Iran.

5.3 Economic diversification:

Experiences with industrial policy around the world suggest that it is not

straightforward to design an appropriate incentive structure that would help lay the

ground for economic diversification in resource-rich countries. Old-style industrial

policies where governmet is directly involved in the production process need to be

avoided. Indeed, those policies have in many cases been captured by local elites,

opening the door to corruption and undermining the broader institutional framework.

New industrial policies have focused on designing incentive-compatible rules aiming to

achieve a private sector-led economic diversification. Success stories that have yielded

economic diversification suggest that low, predictable and non-distorting taxes on

‐19‐

entrepreneurial activity can help foster diversification. Also, the use of commodity

proceeds to establish a supportive physical and social infrastructure can raise returns

and encourage private investment in other sectors. The financial sector can also play an

important role in fostering economic diversification. In particular, effort to deepen and

broaden financial systems in resource-based economies would help achieve that goal.

5.4 Institutions

Perhaps the biggest challenge facing resource-rich countries and of course Iran results

from rent-seeking behavior that undermines their existing institutions, including

political diversification and democracy.in countries with weak institutions, talent tends

to shift out of private entrepreneurial activity into more lucrative rent-seeking activates,

with detrimental implications for efficiency and sustainable economic growth. In Iran

institutions need to be designed to guard against such developments. The strong and

reliable property rights can foster financial-sector development, allowing the financial

system to play a more active and significant role in intermediating resources to help

build small and medium-sized enterprises in the non-resource rich sectors of the

economy. Generally, more effective checks and balances and more transparency in the

management of natural-resource revenues can help counteract the misallocation of talent

into socially unproductive activities in Iranian economy.

‐20‐

Figure No 4:

Policy recommendation

Promoting macroeconomic stability by decoupling current spending from

volatile government revenues

Fiscal policy Establish medium-term spending plans in long run to ensure intergenerational

equity

Sustainable management of revenues through the OSF

Stabilizing exchange rate by inflation-targeting regime and limiting flexible

exchange rates

Monetary policy

& Exchange Rates

Managed cyclical fiscal, policy to stabilize of exchange rates

New industrial policies focused on designing incentive-compatible rules aiming

to achieve a private sector-led economic diversification

Economic

diversification

Predictable and non-distorting taxes on entrepreneurial

Pursuing fiscal sector to play more comprehensive role in fostering economic

diversification

Underscore the existing institutions, including political diversification and

democracy

Institutions

Carful approach to institution building

Source : Author

‐21‐

In this thesis we employed input-output model to analyzing our data and explaining the

issues on our topic, here we proceed to some strengths and limitations point of our

research & models that we have done. It’s been a new idea to study the oil and gas

sector (with related industries) and the income generate from this sector on the process

of industrial growth and focus upon the linkages of this sector with production

technology by using input-output models in Iranian economy. Input- Output modeling is

one of the most accepted means for estimating economic impacts. This is because it

provides a concise and accurate means for articulating the interrelationships among

industries. We employed Hypothetical Extraction Model as well as it helped us to

analyze the result from Leontief demand-side and Ghosh supply-side as well, which

helped us to identifying sector from different aspects by using different multiplier.

The limitations of input-output modeling should also be recognized. The approach

makes several key assumptions. First, the input-output model approach assumes that

there are no economies of scale to production in an industry; that is, the proportion of

inputs used in an industry’s production process does not change regardless of the level

of production. This assumption will not work if the technology matrix depicts an

economy of a recessional economy (e.g., 1982) and the analyst is attempting to model

activity in a peak economic year (e.g.1989).A less-restrictive assumption of the

input-output approach is that technology is not permitted to change over time.

We would advise future researcher to improving the analysis technique at the possible

level. Future researcher could add more multiplier to increase the model abilities for

better analyzing.

‐22‐

(Table No 1 :Forward linkage indicators of Iranian economic sector)

Number The Sector of Iranian Economy FL FLn Rank Statues

1 Agriculture 44690680 5.4938723 2 KS

2 Crude Oil & Natural Gas 19301692 2.3727773 5 FL

3 Other Mining except crude oil and

natural gas

9163487 1.1224306 11 FL

4 Food and Beverages 4082043 0.5018089 15 BL

5 Manufacture of Tobacco products 2495 0.0003667 36 NKS

6 Manufacture of Textile 1865396 0.2293151 20 NKS

7 Manufacture of Wearing apparel;

dressing & dyeing of fur

287932.9 0.0353959 31 NKS

8 Tanning & Fabricating of Leather;

manufacture of luggage, handbags,

saddler, harness & footwear.

159213 0.0195019 35 NKS

9 Manufacture of Wood& product of

Wood & Cork

1196315 0.146536 24 NKS

10 Manufacture of Paper & Paper

products

2000000 0.2458621 18 NKS

11 Publishing, Printing

&Reproduction of recorded media

1034644 0.1271899 23 NKS

12 Manufacture of Coke, refined

petroleum products& Nuclear fuel

5107205 0.6146553 13 NKS

13 Manufacture of Chemical &

Chemical products

12646897 1.5546964 7 FL

14 Manufacture of Rubber & Plastics

products

3575036 0.4394829 16 NKS

15 Manufacture of Glass & Glass

products

612604 0.0753081 27 NKS

16 Manufacture of other non-metallic

mineral products

10455695 1.2807124 9 FL

‐23‐

17 Manufacture of basic Iron& Steel 12477570 1.5283708 10 FL

18 Manufacture of fabricated metal

products except machinery &

equipment

4165659 0.5120888 14 NKS

19 Manufacture of general-purpose

machinery

3181918 0.3911565 17 NKS

20 Manufacture of domestic appliance 299943.6 0.0368793 30 NKS

21 Manufacture of office ,accounting &

computing machinery

20206 0.0024839 34 NKS

22 Manufacture of electrical

machinery & apparatus n.e.c

1097852 0.1229311 25 NKS

23 Manufacture of medical &surgical

instruments

94117 0.0115699 32 NKS

24 Manufacture of optical instrument

&photographic equipment &

watches & clock

63992.242 0.0078666 33 NKS

25 Manufacture of motor vehicles &

other transport equipment

24273583 0.2458621 19 BL

26 Manufacture of furniture 404070 0.0496728 29 NKS

27 Manufacturing of n.e.c & recycling 458908 0.056414 28 NKS

28 Water, Electricity & Gas 17160415 2.1095479 6 FL

29 Construction 12443201 1.5296558 8 KS

30 Wholesale & retail trade 54768378 6.7327344 1 KS

31 Hotel & Restaurant 1325811 0.1629833 21 NKS

32 Transportation services 34437866 4.2334831 3 KS

33 Public services 6612220 0.8128472 12 BL

34 Education services 1038430 0.1276553 22 NKS

35 Medical services 643578 0.0791157 26 BL

36 Other services 27622210 3.3956274 4 KS

Source: Authour

‐24‐

(Table No 2 :Backward linkage indicators of Iranian economic sector )

Number The Sector of Iranian Economy BL BLn Rank Statues

1 Agriculture 28982523 3.1056784 4 KS

2 Crude Oil & Natural Gas 3903136.9 0.4182482 15 FL

3 Other Mining except crude oil and natural

gas

74720.8 0.00245 16 FL

4 Food and Beverages 73199041 7.8437851 1 BL

5 Manufacture of Tobacco products 900336.69 0.0964773 26 NKS

6 Manufacture of Textile 8393627.5 0.8994354 10 NKS

7 Manufacture of Wearing apparel; dressing

& dyeing of fur

2922626 0.3131797 19 NKS

8 Tanning & Fabricating of Leather;

manufacture of luggage, handbags,

saddler, harness & footwear.

1920641.8 0.2058101 22 NKS

9 Manufacture of Wood& product of Wood

& Cork

471437 0.0505177 29 NKS

10 Manufacture of Paper & Paper products 306152.48 0.0328064 32 NKS

11 Publishing, Printing &Reproduction of

recorded media

177836 0.0190564 34 NKS

12 Manufacture of Coke, refined petroleum

products& Nuclear fuel

4692867.1 0.457845 16 NKS

13 Manufacture of Chemical & Chemical

products

4428946.8 0.4745924 14 FL

14 Manufacture of Rubber & Plastics

products

1521201.1 0.1630073 24 NKS

15 Manufacture of Glass & Glass products 570090.4 0.0610891 28 NKS

16 Manufacture of other non-metallic mineral

products

2016920.4 0.216127 21 FL

17 Manufacture of basic Iron& Steel 3122959.7 0.3346468 18 FL

‐25‐

18 Manufacture of fabricated metal products

except machinery & equipment

7609947.4 0.8154587 11 NKS

19 Manufacture of general-purpose

machinery

85009.096 0.0091093 35 NKS

20 Manufacture of domestic appliance 3405156 0.3648861 17 NKS

21 Manufacture of office ,accounting &

computing machinery

218655.65 0.0234305 33 NKS

22 Manufacture of electrical machinery &

apparatus n.e.c

5951629.9 0.6377584 13 NKS

23 Manufacture of medical &surgical

instruments

459469.63 0.0492354 30 NKS

24 Manufacture of optical instrument

&photographic equipment & watches &

clock

454758 0.0487305 31 NKS

25 Manufacture of motor vehicles & other

transport equipment

24273583 2.6010829 5 BL

25 Manufacture of motor vehicles & other

transport equipment

24273583 2.6010829 5 BL

26 Manufacture of furniture 1902185.8 0.2038324 23 NKS

27 Manufacturing of n.e.c & recycling 1138881 0.122039 25 NKS

28 Water, Electricity & Gas 2160240.5 0.2314848 20 FL

29 Construction 63795911 6.8361745 2 KS

30 Wholesale & retail trade 20485789 1.9566405 27 KS

31 Hotel & Restaurant 8695358.4 0.931768 9 NKS

32 Transportation services 12701267 1.3610289 7 KS

33 Public services 15984719 1.7128736 6 BL

34 Education services 6602620.4 0.7075166 12 NKS

35 Medical services 9297687.4 0.9963117 8 BL

36 Other services 33633737 3.604088 3 KS

Source: Authour

‐26‐

(Table No 3 :Proportion of value added from total output of Iranian economic

sector)

VA/X VAs FL CWs

Agricultre 0.635 0.106 5.494 0.123

Crude oil and natural gas 0.974 0.130 2.6 0.007

Other Minging except crude oil and natural gas 0.754 0.006 1.122 0.004

Food and Bevages 0.264 0.027 0.502 0.154

Manufacture of tobacco products 0.777 0.002 0.000 0.001

Manufacture of textiles 0.464 0.013 0.229 0.029

Manufacture of wearing apparel; dressing &

dyeing of fur

0.747 0.007 0.035 0.005

Tanning & fabricating of leather; manufacture

of luggage, handbags, saddlery, harness &

footwear

0.653 0.004 0.020 0.004

Manufacture of wood & products’ of wood &

cork

0.468 0.002 0.147 0.004

Manufacture of paper & paper products 0.584 0.003 0.246 0.005

Publishing, printing & reproduction of recorded

media

0.615 0.002 0.127 0.002

Manufacture of coke, refined petroleum

products & nuclear fuel

0.512 0.012 0.615 0.023

Manufacture of chemicals & chemical products 0.693 0.031 1.555 0.028

Manufacture of rubber & plastics products 0.470 0.005 0.439 0.012

Manufacture of glass & glass products 0.559 0.001 0.075 0.002

‐27‐

Manufacture of other non-metallic mineral

products

0.520 0.012 1.281 0.022

Manufacture of basic iron & steel 0.505 0.022 1.528 0.043

Manufacture of fabricated metal products

except machinery & equipment

0.553 0.012 0.512 0.020

Manufacture of general-purpose machinery 0.791 0.031 0.391 0.017

Manufacture of domestic appliances 0.453 0.003 0.037 0.006

Manufacture of office, accounting & computing

machinery

0.840 0.001 0.002 0.000

Manufacture of electrical machinery &

apparatus n. e. c

0.650 0.015 0.123 0.017

Manufacture of medical & surgical instruments 0.775 0.002 0.012 0.001

Manufacture of optical instrument &

photographic equipment & watches & clock

0.893 0.003 0.008 0.001

Manufacture of motor vehicles & other

transport equipment

0.493 0.032 0.246 0.066

Manufacture of furniture 0.497 0.002 0.050 0.003

Manufacturing n. e. c. & recycling 0.413 0.001 0.056 0.003

aterw&electricity&gas 0.531 0.017 2.110 0.031

construction 0.454 0.053 1.530 0.130

Wholesale & retail trade 0.820 0.116 6.733 0.051

hotel & Resturant 0.554 0.008 0.163 0.012

Transportation services 0.728 0.068 4.233 0.052

public services 0.794 0.061 0.813 0.032

‐28‐

BL: The backward linkages of each sector

WDs: The share of intermediate demand of each sector

FDs: The share of final demand of each sector

FD/X: The proportion of final demand from total output of each sector

(Table No 4 :Proportion of final demand from total output of Iranian economic

sector)

education services 0.876 0.035 0.128 0.010

medical services 0.777 0.026 0.079 0.015

other services 0.801 0.128 3.396 0.064

COR(VA,FL)= 0.8177

COR(CW,FL)= 0.4902

Fd/X FDs WDs BL

Agricultre 0.504 0.085 0.167 3.106

Crude oil and natural gas 0.913 0.124 0.024 0.418

Other Minging except crude oil and natural gas 0.027 0.000 0.016 0.002

Food and Bevages 0.750 0.079 0.052 7.844

Source: Authour

‐29‐

Manufacture of tobacco products 0.997 0.003 0.000 0.096

Manufacture of textiles 0.614 0.017 0.021 0.899

Manufacture of wearing apparel; dressing &

dyeing of fur

0.857 0.008 0.003 0.313

Tanning & fabricating of leather; manufacture of

luggage, handbags, saddlery, harness & footwear

0.829 0.005 0.002 0.206

Manufacture of wood & products’ of wood &

cork

0.226 0.001 0.006 0.051

Manufacture of paper & paper products 0.129 0.001 0.010 0.033

Publishing, printing & reproduction of recorded

media

0.139 0.000 0.005 0.019

Manufacture of coke, refined petroleum products

& nuclear fuel

0.445 0.011 0.026 0.458

Manufacture of chemicals & chemical products 0.382 0.018 0.057 0.475

Manufacture of rubber & plastics products 0.206 0.002 0.017 0.163

Manufacture of glass & glass products 0.439 0.001 0.003 0.061

Manufacture of other non-metallic mineral

products

0.152 0.003 0.039 0.216

Manufacture of basic iron & steel 0.145 0.006 0.074 0.335

‐30‐

Manufacture of fabricated metal products except

machinery & equipment

0.558 0.013 0.020 0.815

Manufacture of general-purpose machinery 0.677 0.027 0.026 0.009

Manufacture of domestic appliances 0.852 0.005 0.002 0.365

Manufacture of office, accounting & computing

machinery

0.909 0.001 0.000 0.023

Manufacture of electrical machinery & apparatus

n. e. c

0.724 0.017 0.013 0.638

Manufacture of medical & surgical instruments 0.740 0.002 0.001 0.049

Manufacture of optical instrument &

photographic equipment & watches & clock

0.914 0.003 0.001 0.049

Manufacture of motor vehicles & other transport

equipment

0.749 0.049 0.033 2.601

Manufacture of furniture 0.815 0.003 0.001 0.204

Manufacturing n. e. c. & recycling 0.582 0.002 0.002 0.122

Electricity&gas&aterw 0.219 0.007 0.051 0.231

Construction 0.763 0.079 0.049 6.836

Wholesale & retail trade 0.644 0.092 0.102 1.957

‐31‐

BL: The backward linkages of each sector

WDs: The share of intermediate demand of each sector

FDs: The share of final demand of each sector

FD/X: The proportion of final demand from total output of each sector

Hotel & Resturant 0.866 0.012 0.004 0.932

Transportation services 0.500 0.048 0.095 1.361

Public services 0.892 0.070 0.017 1.713

Education services 0.977 0.040 0.002 0.708

Medical services 0.973 0.033 0.002 0.996

Other services 0.821 0.133 0.058 3.604

COR(FD,BL)= 0.65997

COR(FW,BL)= 0.44713

Source: Authour

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About the Author

Dr.Nasim Fathi currently working with different research institute from Iran and India, she was a VRF at the Institute of Developing Economies Japan External Trade Organization (IDE-JETRO) from September 24rd of 2013 to March 23rd of 2014, where she conducted her research project. Currently her research relies in the environmental economic with input-output approach, energy of economic and green supply chain management. She published 1 monograph with IDE and more than 12 articles in international input-output conference and national input-output conference in Iran and India too. She can be reached via nasim.fathi@ymail.com